Beginning in January 2024 multinational companies intending to do business in Saudi Arabia with government entities will now be required to incorporate their regional headquarters in the Kingdom. Multinationals that fail to do so will find themselves unable to negotiate agreements with Saudi governmental bodies, which face restrictions from the Ministry of Finance on their ability to contract or do business with foreign companies that have not shifted their regional headquarters.
Qualifying multinationals, which receive a licence from the Ministry of Investment, are able to benefit from favourable rules governing tax and employment, including a 10-year exemption from Saudisation rules that mandate hiring a proportion of Saudi nationals. Qualifying companies will also enjoy 30-year corporate income and withholding tax exemptions, related to specific activities; a waiver of professional accreditation; visa limit exemptions and issuance acceleration; and government tendering priority. Regional headquarters must employ 15 staff within the first year, three of whom should be executives or otherwise senior.
Broad Benefits
Incentivising multinationals to transfer their regional headquarters and make associated investment in new office spaces, residences and logistics is viewed by policymakers as crucial to achieving a target of attracting $100bn in foreign direct investment (FDI) annually by 2030. Although annual FDI inflows remain notably below this target, gross fixed capital formation has increased 74% from 2017 to nearly $300bn in 2023, while FDI stock increased 61% in the same period to reach approximately $215bn.
As of April 2024 the Ministry of Investment said that over 350 international investors have been issued licences to establish their regional headquarters in the Kingdom, most of which are based in Riyadh. Some companies that have announced plans to relocate include China’s Huawei, Switzerland’s ABB, and US-based companies Bechtel and GE HealthCare. US-based digital powerhouses such as Amazon have also joined the scheme, bringing with them $10bn to create a new cloud and data centre infrastructure. Google, Microsoft and Oracle have also joined acquiring licences prior to the January 1, 2025 deadline. Manufacturing giants Airbus, PepsiCo and Pfizer have set up regional headquarters as Saudi Arabia ramps up efforts to establish itself as the pre-eminent Middle Eastern business centre.
Some international firms have chosen to partner with Saudi entities to overcome other perceived initial obstacles to profitability, particularly in nascent industries. While California-based Lucid Group is producing electric vehicles in Jeddah, for example, it is doing so with the support of billions of dollars in investment from the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund. South Korea’s Hyundai Motor Company, meanwhile, has partnered with PIF-owned CEER to build a $500m automotive manufacturing plant.
Investor Confidence
Indeed, confidence in Saudi Arabia as an investment destination is on the rise, with the Kingdom climbing 10 spots to claim 14th place in the 2024 Kearney FDI Confidence Index. Increased confidence is partly attributed to new legislation designed to make it easier for foreign companies to do business, including new rules governing company incorporation, bankruptcy, data protection and privatisation. In 2024 new regulations governing the application of a civil code in commercial disputes and an overhaul of the Kingdom’s investment law have further eased red tape.
Still, multinational companies’ investment decisions are likely guided by a host of factors, not least of which where they might best deploy their capital and what returns on investment each potential market would offer. Nevertheless, Saudi Arabia’s commitment to regulatory reform, large-scale development projects and strategic partnerships position it as an attractive destination. As multinational companies increasingly establish presences, Saudi Arabia is poised to unlock new growth opportunities, fostering a dynamic investment environment that support its Vision 2030 ambitions.
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